Pages

Friday, June 1, 2012

Izabella Kaminska on gold

Credit money, where money use began is based on mutualism, community, solidarity, and trust, all social values. Money itself is an idea rather than a natural "thing," that is, as social construct not found in nature but introduced as a societal institution for facilitating exchange of goods in a way that is more formal than sharing and more convenient than barter.

The more money is divorced from its social context, the more impersonal transactions become. In ancient times, barter and the exchange based on precious commodities such as gold and silver functioning as numeraire took place mostly for trade among communities, where there was little social interaction other than trade.

Hard money was also adopted for payment of troops, again a rather impersonal relationship between soldier and sovereign.

The harder the money the more individualism is emphasized and mutualism submerged, and vice versa. This is played out at the level of individual nations, which historically have acted like adolescents, when trade is based on exchange of precious metals for goods and mercantilism comes to prevail in international relations, overshadowing cooperation and coordination and often leading to wars, and domestic depressions since gold hoarding is deflationary.

One of my early mentors who went through the Great Depression used to say, "What would have happened if everyone just kept doing what they were doing anyway?"

Izabella Kaminska tells the story at FT Alphaville in a series of two posts.